Senior care is a tough nut to crack(2)

Rugao, a city in Jiangsu province, has more reasons than most to be preoccupied with aging and the challenges and benefits that come with it. With a quarter of its population over the age of 65, and 272 aged over 100, Rugao proudly wears the moniker of changshoushi, meaning "city of longevity".

The mayor of Rugao, Chen Xiaodong, led a team to the Care Show in Shanghai to meet potential investors. "We are keen to build a health industry in the city," he says. "Perhaps others can learn something from Rugao with its record of longevity. The city has a good natural environment, nice soil suitable for organic food, and a relaxing lifestyle."

The city plans to establish health industry chains taking in areas including biomedical instruments, organic and high efficiency agriculture, senior housing developments, and other products and services for seniors, he says.

However, areas such as Minghang and Rugao, in their eagerness to make progress in grappling with the problems of aging, seem to be, for the moment, the exceptions. This lack of enthusiasm for the task at hand may have something to do with the unappetizing economics of running aged care homes in China.

The China Research Center on Aging report says that 28 percent of such homes in the country are privately run, and that only 9 percent of them are turning a profit. Of the rest, 40 percent run at a loss, and the remainder is just staying afloat.

In Beijing, the installation of one bed attracts an upfront subsidy of 50,000 yuan from the municipal government and an ongoing contribution of 500 yuan a month after that, but many in the industry say this is simply not enough to make a business viable.

Du Peng, professor of gerontology at Renmin University of China, says that building senior care facilities requires big outlays, and the wait for returns can be long.

"So it is very difficult for private companies to build facilities and manage them properly. Moreover, because they are new and lack brand recognition, it is difficult for them to find widespread acceptance."

In addition, local governments have widely varying approaches to the issue, resulting in a lack of uniformity in regulations, which adds yet another hurdle for anyone considering investing in the industry.

As if all that is not enough to deter potential investors, there is the special mindset of potential Chinese customers.

Qiu Hongjuan, the proprietor of an aged care home in Danyang, Jiangsu province, says: "Whenever a family wants to send an old person into a home, the aged person has an overwhelming feeling of being abandoned. Correspondingly, children wanting to take that step feel shame and guilt. In addition, many old people feel they would rather stay at home rather than spending thousands of yuan a month on an aged care home."

But that has not put Qiu off. She has invested more than 15 million yuan in her facility and is willing to bide her time until it turns a profit one day, in the meantime drawing funds from other businesses to make up any shortfalls.

"Aged care entails long-term investment and low profit margins," she says. "But there is huge promise in the industry, and I am willing to wait."

Her company has one home with about 340 beds and charges 2,500 yuan to 3,500 yuan a month, depending on nursing services required. It plans to open another home with 98 beds before the end of the year.

Like Qiu, Chen Qi invested 150 million yuan in her home in Shanghai, but it has 230 beds compared to Qiu's 340. It has made the top three in Shanghai's annual ratings of aged care homes.

"Because of the close parent-child relationship in China, parents are much more dependent on their children and want to live close to them rather than in a home far away," Chen says.

When Chen's elderly care home was being planned, there was a lot of opposition from locals to its location. The company has put a great deal of effort into smoothing ruffled feathers by being selective about the residents it takes and the staff it employs, and the dust has since settled, she says.

Nevertheless, after two years of operation the home is just managing to break even, she says.

Domestic aged-care operators are not the only ones finding it hard to make ends meet. Foreign companies have found the going tough, too, says Joseph Christian, founder of China Senior Housing Advisers, who has been doing research on China's senior industry for five years. He has helped several Western companies get into the Chinese market.

"The main problem is that this is still a very young industry, and governments are just feeling their way," Christian says.

"Foreign companies are not seeing any real success here. There is no business model that has been proved to be successful, and there are not many people professionally trained for the industry."

The best idea is for foreign companies entering the fray to start their business in conjunction with local partners, Christian says. But because the industry is still in its infancy, reliable partners with similar ideas about management and service standards are hard to find. Many companies tempted to dip their toes into the market's waters are thus simply waiting and watching, he says.